Tag Archives: Eurozone

Deal or No Deal?

Deal. A deal has definitely been done, but was it a good one? Let alone good, was there even any point to it? These are the questions that market experts are starting to ask as doubts grow as to whether this deal will actually do anything to solve Greece’s long term national debt problem.

European finance ministers last night, as expected, agreed to release the next tranche of financial aid to Greece. The meagre sum of €43.7 billion Euros worth of loans starts to be paid to the debt ridden country from December. It is believed that this will help plug the gap in the country’s finances until the end of 2014, however for any true progress to be made many market analysts are calling for at least some of Greece’s outstanding debt to be written down. It is becoming ever more apparent that simply applying increasingly stringent austerity is not having the desired effect, in fact it could even be exacerbating the problem.

Closer to home, yesterday George Osborne announced who is set to succeed Sir Mervyn King as Governor of the Bank of England next year. The decision to name Mark Carney, currently the governor of the Canadian central bank, seems to have taken most people by surprise. However, whilst some of the decisions that Mr Osborne has made whilst Chancellor of the Exchequer have come under scrutiny, this one seems to have been well received and was even deserving of approval from his opposite number, shadow Chancellor Ed Balls. Mr Carney has been widely commended during his time at the Canadian central bank, where he has successfully navigated Canada through some of the toughest global economic conditions in living memory, with Canada fairing much better than many other countries during this time.

This morning Sterling improved to a morning high of 1.2384 against the Euro, whilst the Dollar has also risen against the Euro, with EUR/USD hitting 1.2935. The weakening Euro comes on the back of the agreement made last night between European finance meetings, as markets, whilst relieved a deal was made, are concerned that it will do little to stabilise Greece’s finances in the long term. We could see further movements this afternoon as figures for US Durable Goods Orders are released. Positive results could see the Dollar appreciate further and potentially compound the weakening Euro.

Mark Webster

Once, Twice, Three times… an Agreement

It is no surprise what the focus of the markets will be today. With little economic data due out and nothing of any importance in comparison, attention will remain concentrated on the European finance ministers meeting. Greece is going to go bankrupt. Greece is going to go bankrupt. There are only so many times that you can say this before it actually happens and we are getting ever closer to the point when it will be said for the last time, and Greece actually does run out of money. With this in mind, it is almost certain that some sort of an agreement will be reached today and the next tranche of financial aid released to Greece. Following this, we could actually see a marked improvement in European stocks and a strengthening of the Euro, as such an agreement would remove a substantial amount of uncertainty from the markets, at least for the time being.

Should the current Eurozone crisis be averted today, attention is likely to shift to the next global financial obstacle causing discomfort for the markets – the US fiscal cliff. The problem facing President Obama is a ticking time bomb in the form of $607 billion worth of tax increases and spending cuts due to come into effect in January. Unless some sort of an agreement can be reached in Congress, the recession inducing cliff will be hit imminently and the ability of government officials in Washington to compromise will be key to reducing the uncertainty within the markets.

Please find a summary of this week’s economic calendar below:

26.11.12
08:15 CHF Employment Level
11:30 EU Finance Ministers Meeting
12:00 German Consumer Confidence Survey

27.11.12
07:00 UK Nationwide Housing Prices
09:30 UK GDP
09:30 UK Total Business Investment
13:30 US Durable Goods Orders
13:30 US Fed’s Bernanke Speech
15:00 US Consumer Confidence
15:00 US Housing Price Index

28.11.12
13:00 German Consumer Price Index
13:00 German Harmonised Index of Consumer Prices
15:00 US New Home Sales

29.11.12
06:45 CHF GDP
08:55 German Unemployment Change
10:00 EU Business Climate
10:30 BoE’s Governor King Speech
13:30 US GDP
13:30 US Personal Consumption Expenditures Prices
15:00 US Pending Home Sales

30.11.12
UK Inflation Report Hearings
German Bundestag Vote on Greek Aid
07:00 German Retail Sales
10:00 EU Consumer Price Index
10:00 EU Unemployment Rate
13:30 US Core Personal Consumption Expenditure
13:30 US Personal Income

Mark Webster

Round and Round We Go

The Euro strengthened to a three week high against the Dollar and a month high against Sterling yesterday as optimism grows that a deal on Greece will be reached. Considering that a Greek default, bankruptcy and inescapable exit from the Euro would otherwise be inevitable, an agreement to extend financial aid to Greece seems to be guaranteed, as does a continuation of the Eurozone debt crisis merry-go-round.
After putting up substantial resistance to altering the current Greek target for a debt to GDP ratio of 120% by 2020, the International Monetary Fund has softened its stance and is said to be willing to lessen the target to 124%, a figure still considered viable. This will still leave a gap which is believed to be around 10 billion Euros, a hole that will need to be plugged and the mechanics of how this will be done are still to debated, but this is likely to be easily overcome.

Trading is relatively flat this morning following the release of German GDP and IFO Business Climate figures, as well as UK Mortgage Approvals. The data released so far has been positive across the board which has kept trading relatively flat, apart from a few minor spikes following the immediate release of the figures. The Pound is currently trading close to 1.2342 against the Euro and the rate is continuing to hover at this level where the Pound has found a reasonable amount of support. Should Sterling drop through this, the next level of stiff support for the pound is at 1.2248.

We could also see the Pound drop back off against the Dollar later today, potentially falling back to 1.5911 which is 38.2% retracement of 1.5267 and 1.6309, a level which was tested earlier in the week before the Pound eventually broke through. A break below 1.5911 would likely see support at 1.5882 being reached, with 50% retracement at 1.5788 being targeted after that should the decline continue.
With little more economic data due out for the rest of the week, attention is now likely to turn to the European finance ministers meeting on Monday. As this will be the last meeting before Greece is set to run out of money, it is now expected, and almost certain, that an agreement will be reached and the next tranche of financial aid granted to Greece. Therefore, we could see substantial price movements on Monday, with the Euro likely to be bullish should an agreement on Greece be reached without discord.

Surprise, Surprise

The Pound is only slightly higher against the Euro this morning after paring substantial gains made in the early hours following the conclusion of the European finance ministers meeting in Brussels. GBP/EUR hit 1.2489 this morning before dropping back down to its current level of 1.2438. Similar price movement was experienced by the EUR/USD which dropped off to 1.2735 before climbing back to its current level of 1.2790. Such movements shouldn’t come as much of a surprise as no concrete decision was made last night regarding Greece’s future. The only thing that is guaranteed now is that uncertainty within the Eurozone will continue.

As ministers failed to agree on a definitive rescue plan for Greece, again, any further aid payments will remain on hold until the next emergency ministers meeting scheduled for November 26th, hopefully Greece will manage to remain solvent until then. That said, no firm decision was ever going to be made yesterday on whether or not to release the final tranche of financial aid. Various European governments, including Germany, are yet to weigh in on the issue, and the Troika still needs to confirm that the Greek government has delivered on certain economic indicators, all of which is necessary before any final decision can actually made.

Looking ahead today, there is economic data due out in the US this afternoon. US Initial Jobless Claims and US Reuters Michigan Consumer Sentiment Index are both due to improve, with US Markit Manufacturing PMI expected to remain at 51. If such results meet, or even better, market expectations we could see the Dollar strengthen further against the Euro and also recover some of the losses it has suffered against Sterling over the past few days.

Tension in the Air

The atmosphere is tense in Europe this morning as European finance Ministers make final preparations before a key meeting tomorrow regarding the situation in Greece. To say that reaching an agreement tomorrow is crucial would be an understatement. Greece quite frankly is facing imminent collapse, if this were to materialise it would invariably cause severe problems for the rest of the already troubled Eurozone. The rhetoric coming out of Europe today and at the weekend seems to be one of unanimous determination to reach a final solution, Christine Lagarde commented:

“I am always trying to be constructive but I am driven by two objectives…to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.”

One would like to think that all European finance ministers share such positive intentions, however if previous meetings in Europe are anything to go by, it is going to take a lot more than a simple desire to create a sustainable program for Greece, to fix the problem.

In the US concerns over the looming fiscal cliff have eased following a Speech by US President Barack Obama, in which the President expressed confidence in his governments’ ability to reach an agreement on how to deal with the cliff. This has led to the Dollar weakening against the majority of its counterparts this morning. Notably the Pound has risen for the third straight day against the Greenback following positive UK housing data that came out this morning.

Please find a summary of this week’s economic calendar below:

19.11.12
00:01 UK Rightmove House Price Index
05:00 Japanese Leading Economic Index
15:00 US Existing Home Sales Change

20.11.12
Bank of Japan Interest Rate Decision
European Finance Ministers Meeting
00:30 Australian RBA Meeting’s Minutes
07:00 German Producer Index
13:30 US Housing Starts MoM
17:15 US Fed Governor Bernanke Speech

21.11.12
UK Bank of England Minutes
09:30 UK Public Sector Net Borrowing
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI
14:55 US Reuters/Michigan Consumer Sentiment Index

22.11.12
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 European Markit Manufacturing PMI
08:58 European Markit Services PMI
08:58 European Markit PMI Composite
15:00 European Consumer Confidence

23.11.12
European Council Meeting
07:00 German GDP
09:00 German IFO Business Climate
09:00 German IFO Current Assessment
09:30 UK BBA Mortgage Approvals
13:30 Canadian Consumer Price Index

Mark Webster

Is That a Fat Lady Singing?

Christine Lagarde, the Managing Director of the International Monetary Fund confirmed last night that European Finance Ministers remain committed to ensuring Greece gets ‘back on its feet’. Lagarde remarked that the fight to save Greece was ‘not over until the fat lady sings’. If such strong rhetoric actually translated into affirmative action then possibly, just possibly, Greece would now be in some sort of situation comparable to that of a recovery. However this has not been the case, as we have become accustomed to over the last four years, and as I mentioned in my blog earlier this week, European leaders, Commissions, and Central Banks are all guilty of persistently dodging and delaying key decisions that could have proved incisive in providing Greece, and in turn the Eurozone, some sort of path to recovery. Crunch time must surely come next week as European finance ministers will meet once again to discuss the situation in Greece, and as the debt ridden country nears the brink of collapse as bankruptcy looms and public protest intensifies, the time for action has never been more pressing.

From one debt problem to another. On the other side of the Atlantic today, talks regarding another monumental debt problem will begin as congressional leaders meet at the White House with President Obama for the first time since the election. How well both sides can negotiate the US away from its current collision course with the infamous fiscal cliff will be vital. Markets are currently on tenterhooks as the ever approaching $600 billion cliff looms ever closer, threatening the current Wall Street bull.

Other than the meeting at the White House today there is very little economic data due for release. Therefore markets are likely to be somewhat subdued today, especially as they wait to see how the talks in the US today, and Europe next week, progress. That said, the Pound is up against the Euro this morning after recovering some of the losses it suffered yesterday, hitting 1.2465 at 09:45. The Euro also lost some of the gains that it had recouped against the Dollar earlier this week as it fell to 1.2722 this morning after finding strong resistance around 1.28 yesterday afternoon.

Mark Webster

The Wait Goes On

Last night European Finance Ministers prolonged the inevitable yet again and ensured that unnecessary uncertainty would remain within the markets for at least a further week. Greece could well go bankrupt this week; however this is not going to happen. European leaders won’t allow it to happen, and it is this very reason why markets are becoming frustrated. Frustrated with European finance ministers and their inability to reach a compromise over exactly how Greece’s ever increasing black hole should be plugged.

Ministers did however manage to push back to 2022 the goal of getting Greece’s debt down to a sustainable level, although there was still disagreement amongst ministers over this issue, most notably from IMF Managing Director Christine Lagarde. This miniscule achievement has done little to help reassure the markets this morning as the Euro is down against Sterling and has hit a two month low against the Dollar. Such movements coincided timely with the release of EU and German confidence surveys, for both of which the results were appropriately down.

The Pound’s strength this morning is likely down to the positive Consumer and Producer price index figures released at 9:30. The UK Consumer Price index (YoY) figure hit 2.7%, surpassing market expectations of 2.3%, whilst the UK Producer Price Index – Output (YoY) remained flat at 2.5%. This led to a sharp spike in GBP/EUR as it hit 1.2546 and GBP/USD reached 1.5904 before leveling out. With little more economic data due out for the rest of the day other than the US Monthly Budget Statement at 19:00, the driving force behind any rate movements today will be the ever worsening situation in Greece.

Mark Webster

EU Summit 18-19th October

EU leaders will meet today for a two-day summit over plans for a single supervision mechanism and banking union and the wider issues surrounding the Eurozone crisis. In the days leading up to the summit the Euro has appreciated in a climate of calmer European stock markets and lower borrowing costs for Greece and Spain. There has also been a significant effort from Germany to argue for greater European economic and fiscal integration. EURUSD currently trades at 1.31 and EURGBP is currently trading above 0.81p (1.23). GBPUSD has also tracked EURUSD higher and trades above 1.61 on the interbank market.

Despite the relative increase in positive sentiment surrounding the Euro, it must be remembered that the summit is being held against a very dark backdrop. Greece today is braced for its twentieth general strike in two years and Spanish premier Rajoy continues to drag his feet on Spain’s bailout request. Any bailout request is now anticipated in November after the Galician and Basque parliamentary elections held on October 21st. Whilst it should be noted Catalonian parliamentary elections are due to be held on November 25th. Full Catalonian independence is unlikely to happen soon, if at all, but any Catalan struggle for greater autonomy would damage confidence, at a time when Spain needs to reassure the bond markets and fellow EU members , that the central Spanish government has its problems in hand.

No formal announcements are expected on Greece or Spain but any leaked comments could cause volatility in the Euro.

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10:00 18.10.12

Currency Update

Yesterday Wednesday 15th saw Greece’s troubles resurface. With Greece facing a deepening recession, the Greek Prime Minister is set to meet with his French, German and Luxemburg counterparts next week to persuade Eurozone leaders to extend the period of austerity from two to four years, essentially planning to reduce the Greek budget deficit by 1.5% of GDP annually compared to the previous agreement of 2.5%. Due to the slower pace of deficit reduction it is believed an additional £20bn of funding would be required to support Greece.

In the UK, yesterday’s jobs figures continued to defy the recession with unemployment down to 8% and the claimant count dropping by 5,900 in July. Minutes released by the Bank of England also confirmed that the Monetary Policy Committee was unanimous in its decision to leave the bank rate unchanged at 0.5% and to maintain its Quantitative Easing Asset Purchase Programme at its current level of £375bn. Unlike in previous meetings, the bank did not hint towards a bias of further rate cuts giving Sterling a further boost. It is expected that the Bank will gauge the impact of the new Funding for Lending Scheme and the completion of its current £50bn extension of QE in November before it makes a decision on more monetary easing. Today, UK retail sales also beat market expectations growing by 2.8% year on year.

The better than expected news from the UK, coupled with the Eurozone’s on-going troubles has pushed GBPEUR higher towards 1.28, currently trading at 1.2793 (EURGBP 0.7817).

Elsewhere the Pound trades between 1.56-1.57 against the US Dollar and the Euro trades at 1.23-1.24 against the US Dollar on the interbank market.

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16/08/12 10:30

Spanish Bank Bailout fund

The markets have responded favourably to the agreed bailout of Spain’s banks. Eurozone ministers have agreed to lend Spain as much as EUR 100bn to fund its troubled banks. Equities in Asia and Europe have opened higher and Spain’s bond yields have also dropped back below 6%, reducing the cost of funding Spain’s debt.

The Euro also opened a cent higher against the US Dollar, hitting a high earlier of 1.2668 and ¾ pence higher against the Pound hitting a high earlier of 0.8155 (GBPEUR 1.2262). The Euro has however since pared the majority of these gains and currently trades at 1.2550 against the US Dollar and 0.8075 (1.2384) against the Pound.

As the week progresses the markets focus will turn to the upcoming Greek elections on June 17th. Many are viewing the elections as a referendum on Greece’s membership of the European Monetary Union. If Greece renounces its bailout terms, Greece’s international partners could stop providing the rescue loans which the country depends on. That could lead Greece to default and potentially force Greece out of the Eurozone.

12:30 11/06/12